The Price of Silver in the Age of Broken Promises

The price of silver remains at the mercy of the big banks that make of the majority of the short side at COMEX — which is still the primary paper pricing mechanism for silver.

Could silver prices go above $50 and beyond this year — and then perhaps retest $50 as a floor?

Concentration Matters

Remember that it is the concentration that matters most for the price of silver. It does not matter if those large silver short positions are hedged or if a long exists for every short, since that is a fundamental aspect of market driven pricing.

All that matters is that one or two entities hold the majority of that short position and therefore they can and do influence prices. This is the same story that has been told over and over by Ted Butler and GATA for decades.

For comparison purposes, and even when the concentration is calculated without removing swaps, the current level of short market concentration eclipses the amount of silver which the Hunt brothers held long so many years ago and were subsequently persecuted for.

Silver Tests Major Moving Averages

If these dominating banks decide to let silver prices run through the closely watched technical moving averages — which it looks like they might — they could achieve this simply by covering their short positions. Such buying would push the market considerably higher and signal numerous weak longs to enter. The market could get to $50 in hurry.

The price of silver has already broken above its 200 day moving average and is now trading just below its 100 day moving average. A break above the 100 day MA would typically be considered a bullish technical signal.

Silver remains severely undervalued and has been cheap for decades. Nevertheless, silver has continued its managed retreat from its April 2011 high of $49.77, although it has repeatedly held its value in the $26 region.

If silver’s next move up through $35 is shorted the entire way up by the big bullion banks — which will be clearly documented by the COT report — then the market will probably remain within the relatively tight $26-$37.50 trading range that it has been stuck in since September of 2011.

Timing the Silver Rally is Difficult

It remains challenging to time any of the silver rally scenarios or guess about when macro issues will finally start to affect the market price of silver, but higher prices for silver do seem more likely than not over the medium and long term.

The silver market has one or two concentrated shorts trading against a heterogeneous group of longs in the world's primary silver pricing mechanism. This seems both irrational and illegal, and it creates price moves contrary to where technical indicators say the market should trade.

Silver investors can become aware of the macro set up, the precariousness of the U.S. Dollar Ponzi scheme, and the competitive currency devaluations occurring around the world. It seems that central banks must print to save themselves, and this factor will continue to fuel investment demand for silver, despite deflationary pressures.

Money printing will fuel demand, but there were two lines in front of many coin shops during silver’s dramatic run up in 1980, with plenty of people in each line —as equal numbers bought and equal numbers sold.

Silver’s short term price has become a result of the COMEX shenanigans, while long term demand results from basic monetary flaws in the paper currency used to measure silver’s value.

Currency Debasement War Brightens Silver’s Future

It remains possible that if and when the currency debasement war picks up, it could trigger a sharp upside blow off event in silver. Furthermore, the path to this rally is fairly certain. World governments are on a race to debase their currencies, which are essentially debt tickets or promises to pay with no intrinsic value.

Filling the world with these broken paper promises destroys faith, erodes savings and undermines the overall economic structure. The bust seems inevitable at some point, but the challenge lies in predicting when that will occur.

This makes long term price of silver forecasting rather difficult - outside of measuring relative purchasing power.

Although paper price manipulation discourages silver investment and the convenience of holding paper derivatives beckons, when the music stops, nine tenths of the law is possession. Having physical metal under your control then becomes the ultimate wealth preserver.

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